Gold: three zeros and a figure in front?

August 7th, 2007

Pierre Lassonde, vice-chair at Newmont Mining, the world’s second largest gold producer, the Australian Diggers & Dealers Forum that he sees the gold price moving towards “three zeros and a figure in front”? He was not sure whether that figure in front would be a one or what. His optimism for gold apparently is because of his fears that the US current account deficit will push the dollar down, with a resultant tsunami of liquidity around the world?

Lassonde gave the Forum a six-point forecast that should interest precious metals investors:
The bull market for minerals will last for at least another 20 years, and while the drivers of China and India may have soft moments, they will be an ongoing force for minerals and metals demand.

The US dollar will plunge through the massive current account deficit though the size of the country’s economy was unlikely to create a recession in the next few years.

The Canadian dollar will like reach parity and beyond with the $US while the Australian dollar will make further inroads on the Greenback.

Copper and molybdenum are two metals that may experience a weakness, though oil, gold, platinum and nickel will maintain strength.

Since the 1990s the Dow Jones Average marker has had a fluctuating tussle with the gold price including a nadir for the metal in 1996 when the Dow was 28 times greater. The two were now moving into balance and could see gold move to a 2:1 status in the foreseeable future.

The gold price could reach $US750/oz by the end of this year and $US850/oz in the following 12 months.

Also discussed at the Forum was the huge success of exchange-traded funds (ETFs). Lassonde boasted that the World Gold Council, under his guidance, birthed the most successful ETF, which holds 90% of the gold in ETFs. The total amount of gold held by the world’s four major gold ETFs rose to record levels last week.

Meanwhile, news out of Spain gave concern about the price of gold over the short term.

With no gold sales during June, Spain’s central bank resumed sales in July, dumping 800,000 ounces or 25 tons. That puts the bank’s sales to 149 tons under the Central Bank Gold Agreement (CBGA) year that ends September 26, 2007. The big question now: Will the Central Bank of Spain dump still more before the CBGA year ends?

The CBGA limits sales to 500 tons a year among the signatories, and with only six weeks left in this CBGA year some 150 tons are still eligible to be sold. So, will Spain’s CB rush to sell so that it does not have to stand in line next year behind the banks that have already spoken for allotments?

If the 500-ton limit were to be met this CBGA year, then the weekly rate of CBGA sales would average about 21 tons. This would be an added load on the gold market, which has easily absorbed CBGA sales that have averaged eight tons a week for the year. The average for July was 17 tons.

If the Spaniards dump, gold investors, such as those who keep adding to their ETFs positions, may have opportunities to buy at lower prices. Not a prediction, just an observation. Frankly, I like the gold market right now, and believe, as does Pierre Lassonde, that gold will see four digit prices. I also agree with Lassonde that this precious metals bull market has a long way to go. I’ve been saying fifteen years; it good to hear someone like Lassonde say twenty.

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